[Federal Register Volume 79, Number 227 (Tuesday, November 25, 2014)]
[Rules and Regulations]
[Pages 70344-70348]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-27661]
-----------------------------------------------------------------------
DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 44, 46, and 52
[FAC 2005-78; FAR Case 2012-032; Item IV; Docket No. 2012-0032,
Sequence No. 1]
RIN 9000-AM65
Federal Acquisition Regulation; Higher-Level Contract Quality
Requirements
AGENCY: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the
Federal Acquisition Regulation (FAR) to clarify when to use higher-
level quality standards in solicitations and contracts. The rule also
updates the examples of higher-level quality standards by removing
obsolete standards and adding new industry standards that pertain to
quality assurance for avoidance of counterfeit items.
DATES: Effective: December 26, 2014.
FOR FURTHER INFORMATION CONTACT: Mr. Edward Loeb, Procurement Analyst,
at 202-501-0650, for clarification of content. For information
pertaining to status or publication schedules, contact the Regulatory
Secretariat Division at 202-501-4755. Please cite FAC 2005-78, FAR Case
2012-032.
SUPPLEMENTARY INFORMATION:
I. Background
DoD, GSA, and NASA published a proposed rule in the Federal
Register at 78 FR 72620 on December 3, 2013, to revise FAR subpart
46.2, Contract Quality Requirements. The rule sought to ensure that
agencies assess the risk of nonconforming items when determining
whether higher-level quality standards should be used by the Government
and relied on by contractors. Six respondents submitted comments on the
proposed rule.
II. Discussion and Analysis
The Civilian Agency Acquisition Council and the Defense Acquisition
Regulations Council (the Councils) reviewed the comments in the
development of the final rule. A discussion of the comments and the
changes made to the rule as a result of those comments are provided as
follows:
A. Summary of Significant Changes From the Proposed Rule
1. Revised FAR 46.202-4, Higher-level contract quality requirements
to--
a. Clarify that higher-level quality standards include both
overarching quality management system standards and product or process
specific quality standards;
b. Delete reference to SAE AS6174; and
c. Add the commodity specific quality management system standard
for automotive production, ISO/TS 16949.
2. Clarified that the contracting officer will list the title,
number, date, and tailoring (if any) of applicable higher-
[[Page 70345]]
level quality standard(s) in the clause prescribed at FAR 46.311.
3. Revised FAR 52.246-11, Higher-level Contract Quality
Requirements, to clarify that the prime contractor is responsible for
flowing down applicable requirements of the higher-level quality
standard in subcontracts for critical and complex items at any tier.
B. Analysis of Public Comments
1. Design and Testing
Comment: One respondent recognized the need to consider ``testing''
and ``design'' as considerations for identifying higher-level contract
requirements. See FAR 42.202-4(a)(1). However, the respondent seeks
clarification on the inclusion of control of ``design'' and ``testing''
for complex and critical item contracts.
Response: Control of design and/or testing are complex processes
that require heightened controls in many applications. While not all
higher-level quality standards specify controls for design or testing
some of them do, such as ISO 9001, which provides detailed
requirements/guidelines concerning control of design and testing.
2. Agency Guidance
Comment: One respondent recommended that agency guidance on
implementing higher-level quality requirements be completed before any
new FAR policy and that it should focus on larger acquisitions to avoid
the indiscriminate use of higher-level quality requirements. This
respondent further recommended establishing a working group with
industry to help define Governmentwide criteria for use of higher-level
quality requirements so as to avoid each agency having a different
policy. The same respondent recommended that contracting officer
higher-level quality standards determinations be made subject to
higher-level acquisition approval authority and subject matter expert
concurrence and that these documents should be included in the contract
file.
Response: The purpose of the rule is to ensure a considered
approach to the use of higher-level quality standards so they will not
be applied indiscriminately. Agency procedures will provide guidance to
the contracting officer about higher-level standards to determine when
they are necessary and which standards should apply.
3. Standards List
Comment: One respondent recommended a collaborative approach
between the contracting officer and the contractor when determining
which higher-level quality standards apply to the prime and
subcontractors. Another respondent recommended allowing contractors to
have the flexibility to adopt systems and practices that reflect an
appropriate standard. Another respondent recommended allowing industry
to propose alternate quality standards or be given an opportunity to
rebut or deviate from the standard assigned in the clause at FAR
52.246-11.
Response: This rule eliminates the ability for the offeror to
indicate its selection of quality standard(s) by checking a block. This
option of allowing the offeror to indicate its choice of standard was
eliminated to ensure that the Government adequately assesses the
necessity and appropriateness of the higher-level quality standard
chosen. This rule does not change a contractor's ability to work with
the Government acquisition team prior to receipt of proposals to
discuss the solicitation, including higher-level quality standards,
through exchanges such as conferences, public hearings, one-on-one
meetings, draft requests for proposal, etc.
Comment: One respondent recommended that FAR 46.202-4(b) state that
if the FAR 52.246-11 clause is used, the cited standards will take
precedence over any other higher-level quality requirements separately
cited in any other contract document (e.g. Statement of Work (SOW),
Contract Data Requirements).
Response: The Order of Precedence, FAR 52.212-8, clause already
provides the order to follow when there is an inconsistency in the
solicitation or contract and states that the contract clause takes
precedence over the specifications.
4. Commercial Items
Comments: Several respondents commented that it is unclear whether
higher-level quality requirements apply to commercial item/commercially
available off-the-shelf item suppliers. One respondent recommended that
FAR 46.202-4 and 46.311 be revised to clearly state that 52.246-11 is
not to be included in contracts for commercial items.
Response: FAR 52.246-11 does not apply to commercial items or
commercially available off-the-shelf items.
5. Flowdown
Comment: One respondent commented that it is unclear whether
higher-level quality requirements flow down to subcontractors/
suppliers, and recommended that the requirements not flow down to allow
contractors to manage their own supply chain risk.
Response: Higher-level quality standards generally require
contractors to apply the standards to their subcontractors. In those
circumstances, the contractor is contractually obligated to comply with
these standards and also ensure its subcontractors adhere. However,
because the FAR clause 52.246-11 did not specifically address flowdown,
the clause at 52.246-11 is being revised to clarify that the prime
contractor is responsible for flowing down applicable requirements of
the higher-level quality standards in subcontracts for critical and
complex items, at any tier.
6. Obsolescence
Comment: One respondent recommended strengthening policy associated
with obsolescence management. Another respondent recommended including
new DoD policies on product obsolescence, diminishing manufacturing
sources and attempts to leverage DoD expedited process for
identification and replacement of obsolete electronic parts.
Response: The FAR rule does not address obsolescence management and
diminishing manufacturing sources as these areas are outside the scope
of this FAR case.
7. Purchasing System Review
Comment: Respondents commented that the additional oversight of the
quality management system as a part of the Contractor Purchasing System
Review (CPSR) process is duplicative. One respondent indicated that
industry already has strong self-governance in place to ensure
compliance consisting of certification by independent bodies and
Defense Contract Management Agency (DCMA), who routinely performs
quality management system assessments. Also, the commenter indicated
that the proposed rule does not provide guidance on how third party
approvals such as AS9100 will be utilized to avoid duplication of cost
and effort.
Response: Review of quality management systems as a part of the
CPSR process has been a longstanding process. A third party audit
establishes that the contractor has a documented process in place
whereas Government Contract Quality Assurance (QA) validates that the
contractor is executing to their process. Attention to implementation
of higher-level quality standards during the course of purchasing
system reviews is consistent with Government Contract Quality Assurance
functions and
[[Page 70346]]
responsibilities stated in FAR part 46. It is noted that third party
audits are performed by organizations that are hired by the contractor,
not the Government, and who do not have formal/legal responsibilities
to represent the Government's interests.
Comment: One respondent commented that higher-level quality
requirements should not be part of the contractors purchasing system
review because a single counterfeit incident could cause withdrawal of
purchasing system approval. Another respondent recommended adding
language that a deficiency solely related to the implementation of
higher-level quality standards will not prevent the overall purchasing
system from functioning as if approved.
Response: If the contractor is subject to a QA standard covering
detection of counterfeits and a single incidence of a counterfeit part
is documented as delivered during a CPSR review, the administrative
contracting officer would be required to examine the circumstances to
determine whether it is an isolated incident and whether the occurrence
could have been prevented by the prime contractor's proper adherence to
its policies, procedures, and internal controls before withholding
approval of the purchasing system (FAR 44.301 and 44.305-1).
Comment: One respondent commented that a satisfactory purchasing
system should obviate the need to identify standards on individual
contracts as proposed by FAR 52.246-11.
Response: There are four sections to a Quality Management System
(QMS) and the purchasing system is one of six parts in one section;
therefore, an acceptable purchasing system does not mean the entire QMS
is acceptable.
Comment: One respondent commented that the FAR case presents
unbounded content for review during a CPSR process and lacks alignment
with the Defense Acquisition Regulations System (DFARS) case, which
added nine elements to the CPSR process.
Response: This rule does not change the methodology for conducting
a CPSR. It adds content in that, when higher-level QA is applicable to
the contract, the Government will, as one part of the purchasing system
review, confirm that the contractor is including appropriate quality
requirements in their purchases orders. The CPSR review criteria
pertaining to the implementation of higher-level quality requirements
are bounded by the applicable portions of the contractor's quality
standard(s) (e.g., ISO 9001 Clause 7.4-Purchasing). This has been a
long-standing process to include this review in CPSRs. The elements
added to the DFARS, mentioned by the respondent, are additional
elements of the CPSR for DoD coverage of a contractor's counterfeit
electronic part detection and avoidance system that are not included in
the FAR.
8. Risk-Based Approach
Comment: Two respondents commented that this rule takes a positive
step in applying a risk-based approach to the assessment of materials
entering the supply chain.
Response: Noted.
9. Scope
Comment: One respondent recommended excluding counterfeit parts
standards from higher-level quality requirements.
Response: The Councils disagree with eliminating higher-level
quality standards that address counterfeit items due to the significant
and growing risk, in quality, reliability, and safety that
counterfeiting poses to the Government. This FAR rule case specifically
removes outdated or obsolete standards and adds new examples of higher-
level quality standards, including a standard related to
counterfeiting.
10. Small Business
Comment: Two respondents commented that this rule will have
unintended consequences on small businesses, including small business
withdrawal from the market place, which will reduce competition.
Response: This rule is not meant to limit small business
participation in Government contracting; the purpose of the rule is to
ensure that agencies have procedures in place to assess the risk of
nonconforming items when determining whether higher-level quality
standards should be used by the Government and relied on by all
contractors. When contracting for complex or critical items where
higher-level quality standards are necessary it would not be prudent to
make exceptions based on business size.
11. Source Selection Process
Comment: One respondent recommended providing source selection
policy guidance such as choice of contract type, source selection
process, and evaluation of performance risk and price, when using
higher-level quality requirements.
Response: The FAR subpart 15.1 outlines source selection processes
and techniques that are available strategies depending on the type of
acquisition. This approach allows the acquisition team to exercise
discretion and use business judgment to determine the best approach for
a particular acquisition.
12. Standards List
Comment: One respondent supported incorporating requirements for
detection and avoidance of counterfeit electronic parts into key
Quality Management Systems (QMS) standards (e.g. ISO 9000 and AS9100)
and including counterfeit electronic parts avoidance and detection
standards among the higher-level quality standards.
Response: Noted.
Comment: One respondent recommended that the standards listed in
the proposed FAR 46.202-4(b) be more generic; also, applying examples
like nuclear standards may mislead personnel into what the minimum
requirements are.
Response: FAR 46.202-4(b) includes a list of examples of more
specific standards to assist with selecting common standards.
Comments: One respondent recommended adding ISO/TS16949 to the list
of higher-level quality standards. Another respondent supported
standards that are specific to quality management systems (e.g. AS9100,
ISO9001 and AS9003) and also incorporating counterfeit parts mitigation
strategies through AS5553. One respondent commented that there are a
number of different standards including SAE standard AS5553, ISO 27000
series, and Open Group Trusted Technology Provider Standard that help
with counterfeit avoidance and supply chain risk management.
Response: The Councils added different examples of higher-level
quality standards at FAR 46.202-4(b) to allow agencies flexibility to
choose the standard that best meets their quality requirements. The
standards listed are examples that could be used by agencies but this
list is not exhaustive. The Councils concurred with adding the
commodity specific quality management system standard for automotive
production, ISO/TS16949. This case further clarifies language at FAR
46.202-4(b) that higher-level quality standards include both
overarching quality management system standards and product or process
specific quality standards. While the rule does not add a comprehensive
list of higher-level quality standards, it does not preclude the use of
standards not listed in the examples at FAR 46.202-4(b).
Comments: Several respondents commented that SAE AS6174 should not
be included in the list of higher-level quality requirements since the
document does not provide guidance to industry or Government in
[[Page 70347]]
implementing meaningful counterfeit avoidance processes for material.
Two respondents commented that AS6174 should not be cited as guidance
as it is not mature enough to use at this stage.
Response: The Councils have accepted this comment and have deleted
reference to SAE AS6174 listed in FAR 46.202-4(b).
Comments: Two respondents commented that the proposed rule extends
beyond electronic parts, which is outside of section 818 requirements
and recommends the Government collaborate with industry on a risk
assessment of counterfeit trends to determine the extent that non-
electronic parts represent a counterfeiting risk. One respondent
recommended that before expanding the scope of the rule beyond
electronic parts, steps should be taken to (1) collect information from
Federal agencies and departments on the extent to which counterfeit
material other than electronics has been identified as a cause of
product or system failure; (2) call for routine assessment of trends to
determine the extent to which other material commodities emerge as a
significant counterfeiting risk; and (3) encourage development of
standards to address other material types. Another respondent
recommended a phased-in approach to implementation to align with other
section 818 regulatory cases.
Response: This rule does not directly implement any specific aspect
of section 818, but recognizes the quality, reliability, and safety
risk that counterfeit electronic parts represent.
This case removes outdated or obsolete standards and adds new
examples of higher-level quality standards, including a standard
related to counterfeiting. Contracting officers, along with technical
personnel, are not restricted to the list of examples of higher-level
quality standards, and may elect other standards that meet the
Government's needs.
III. Executive Orders 12866 and 13563
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). E.O.
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
This is not a significant regulatory action and, therefore, was not
subject to review under section 6(b) of E.O. 12866, Regulatory Planning
and Review, dated September 30, 1993. This rule is not a major rule
under 5 U.S. C. 804.
IV. Regulatory Flexibility Act
DoD, GSA, and NASA have prepared a Final Regulatory Flexibility
Analysis (FRFA) consistent with the Regulatory Flexibility Act, 5 U.S.
C. 601, et seq. The FRFA is summarized as follows:
The Government must identify items that are critical to
accomplishment of the agency mission and apply higher-level quality
requirements to those items. The contractor has an obligation to
ensure that its deliverables meet the specified quality
requirements, which also entails ensuring that its subcontractors
adhere to the higher level quality standard where appropriate. This
case proposes to (a) specify the higher-level quality requirement
and (b) add this to the list of issues to be considered during
contractor purchasing system reviews.
Two respondents expressed concern that this rule would have
significant effects on small businesses, which would result in their
withdrawal from participation in Government contracting. The FAR
revisions made by the rule do not increase the burden on businesses,
including small businesses, and the rule was not modified to allow
for differing quality standards based on business size. No changes
were made to the rule as a result of these comments. However, in
response to another respondent, it was clarified that flowdown of
the higher-level quality assurance standards will only apply to
subcontracts involving critical or complex items, thus small
business who do not comply with the higher level standards may still
compete on other subcontracts.
Large and small businesses provide critical items directly to
the Government or to Government prime contractors and these
companies may be impacted by this rule. However, there is no easy
way to identify the number of contracts that contain higher-level
quality standards and how many of these are awarded to both large
and small businesses.
Interested parties may obtain a copy of the FRFA from the
Regulatory Secretariat. The Regulatory Secretariat has submitted a copy
of the FRFA to the Chief Counsel for Advocacy of the Small Business
Administration.
V. Paperwork Reduction Act
The final rule does not contain any information collection
requirements that require the approval of the Office of Management and
Budget under the Paperwork Reduction Act (44 U.S. C. chapter 35).
List of Subjects in 48 CFR Parts 44, 46, and 52
Government procurement.
Dated: November 17, 2014.
William Clark,
Acting Director, Office of Government-wide Acquisition Policy, Office
of Acquisition Policy, Office of Government-wide Policy.
Therefore, DoD, GSA, and NASA amend 48 CFR parts 44, 46, and 52 as
set forth below:
0
1. The authority citation for 48 CFR parts 44, 46, and 52 continues to
read as follows:
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51
U.S.C. 20113.
PART 44--SUBCONTRACTING POLICIES AND PROCEDURES
0
2. Amend section 44.303 by--
0
a. Removing from the end of paragraph (i) ``and'';
0
b. Removing from the end of paragraph (j) the period and adding ``;
and'' in its place; and
0
c. Adding paragraph (k).
The addition reads as follows:
44.303 Extent of review.
* * * * *
(k) Implementation of higher-level quality standards.
PART 46--QUALITY ASSURANCE
0
3. Revise section 46.202-4 to read as follows:
46.202-4 Higher-level contract quality requirements.
(a) Agencies shall establish procedures for determining when
higher-level contract quality requirements are necessary, for
determining the risk (both the likelihood and the impact) of
nonconformance, and for advising the contracting officer about which
higher-level standards should be applied and included in the
solicitation and contract. Requiring compliance with higher-level
quality standards is necessary in solicitations and contracts for
complex or critical items (see 46.203) or when the technical
requirements of the contract require--
(1) Control of such things as design, work operations, in-process
controls, testing, and inspection; or
(2) Attention to such factors as organization, planning, work
instructions, documentation control, and advanced metrology.
(b) Examples of higher-level quality standards include overarching
quality management system standards such as ISO 9001, ANSI/ASQC E4,
ASME NQA-1, SAE AS9100, SAE AS9003, and ISO/TS 16949, and product or
process specific quality standards such as SAE AS5553.
[[Page 70348]]
0
4. Revise section 46.311 to read as follows:
46.311 Higher-level contract quality requirement.
(a) The contracting officer shall insert the clause at 52.246-11,
Higher-Level Contract Quality Requirement, in solicitations and
contracts when the inclusion of a higher-level contract quality
requirement is necessary (see 46.202-4).
(b) For each higher-level quality standard, the contracting officer
shall fill in the title, number, date, and tailoring (if any).
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
5. Revise section 52.246-11 to read as follows:
52.246-11 Higher-Level Contract Quality Requirement.
As prescribed in 46.311, insert the following clause:
Higher-Level Contract Quality Requirement (DEC 2014)
(a) The Contractor shall comply with the higher-level quality
standard(s) listed below.
[Contracting Officer insert the title, number, date, and tailoring
(if any) of the higher-level quality standards.]
(b) The Contractor shall include applicable requirements of the
higher-level quality standard(s) listed in paragraph (a) of this
clause and the requirement to flow down such standards, as
applicable, to lower-tier subcontracts, in--
(1) Any subcontract for critical and complex items (see
46.203(b) and (c)); or
(2) When the technical requirements of a subcontract require--
(i) Control of such things as design, work operations, in-
process control, testing, and inspection; or
(ii) Attention to such factors as organization, planning, work
instructions, documentation control, and advanced metrology.
(End of clause)
[FR Doc. 2014-27661 Filed 11-24-14; 8:45 am]
BILLING CODE 6820-EP-P